The market for flash memory cards has started to recover from inventory gluts and should grow substantially over the next few years, according to a new report.

Worldwide sales of flash cards--used for removable data storage in devices such as digital cameras--are expected to total $2.05 billion this year, according to a report from Web-Feet Research, a Monterey, Calif.-based firm specializing in analysis of flash and other nonvolatile memory.

That compares with sales of $1.8 billion in 2000 and $1.3 billion in 2001, when persistent inventory problems led to drastic price-cutting, said Web-Feet CEO Alan Niebel.

Prices have stabilized somewhat, Niebel said, although competition is still fierce.

"Flash cards are a commodity product," he said. "They're a low-margin business, and it's very difficult for people to survive."

Web-Feet predicts that the flash card market will grow to $13.5 billion in annual sales by 2007, with unit sales increasing from 75.1 million this year to 542 million in 2007.

Digital cameras will continue to be the main application for flash cards, but handheld computers, USB storage products and cell phones will also help expand the market, Niebel said.

"You've got the beginning now of cards going into cell phones, and that's going to pick up as digital cameras migrate into cell phones," he said.

Cards using the Compact Flash format dominate the market now, but the smaller and thinner Secure Digital format and Sony's Memory Stick should predominate within a few years, as prices for those formats drop.

Retail prices for flash cards currently are averaging about 50 cents for each megabyte of storage, Niebel said, and prices will continue to drop as consumers favor bigger cards. "Next year, we'll easily see 40 cents a megabyte," he said.